Beneficial ownership platform takes shape

Since the Panama Papers revelations in April, the debate about anonymous shell companies and the importance of access to information about the true owners of companies, trusts and other entities has gained considerable traction.

Coverage of law firm Mossack Fonseca’s data leak showed that knowing the owners and ultimate beneficiaries of corporate vehicles can be an important element in the fight against corruption and financial crime.

For the same reason, the U.K. government had previously demanded that all of its Overseas Territories and Crown Dependencies set up registers of beneficial ownership that would be accessible by law enforcement and tax authorities.

Advocacy groups have gone farther and called for registers that are open for public inspection, including by the media.

At a Joint Ministerial Council Meeting between U.K. and Overseas Territories government representatives in December 2015, Cayman and other offshore centers linked to the U.K. agreed they would implement centralized beneficial ownership registers or “similarly effective systems.”

But access to these systems would not have to be public.

Until then, the Cayman Islands government had maintained that its system is working well.

In Cayman, service providers collect, update and maintain beneficial ownership data, but they do not report it to a central register, which would throw up new security and privacy issues in addition to greater costs.

Foreign law enforcement and tax authorities can access the information through bilateral agreements and multilateral treaties governing the exchange of tax information and other data relevant to criminal investigations.

The problem is that the process is much slower than pulling data from an online central register would be.

Centralized platform

As a compromise, Cayman and the U.K. agreed that Cayman would create a centralized platform.

The platform, in contrast to a register, centralizes access to the information, rather than the data itself, within the Ministry of Financial Services’ Department of International Tax Cooperation.

The platform will enable a government official, the centralized platform operator, to access and interrogate the beneficial ownership databases of all financial service providers in Cayman.

These service providers will continue to collect and update the beneficial ownership data and make the data available on their own systems to the platform.

U.K. authorities will have expedited access to the beneficial ownership information from June 2017.

Cayman committed to responding to individual requests within 24 hours.

Global standard

In May, the Cayman Islands government announced that in addition, it would join an initiative of 40 countries that will develop a global standard for sharing ownership information of companies and trusts. This initiative seeks to exchange information automatically – in contrast to the information exchange on request Cayman agreed with the U.K.

It turned out that the U.K. government had required Cayman to join the initiative to be able to participate at an anti-corruption conference in London, where registers of beneficial ownership were one of the talking points.

To get a seat at the table, Cayman’s government accepted – in principle.

At the Anti-Corruption Summit, Premier Alden McLaughlin offered all participating countries the same type of access to beneficial ownership information that Cayman had concluded with the U.K.

He said his government fully supports access to beneficial ownership data by foreign law enforcement agencies to help detect and prosecute corruption, tax evasion and other serious crimes.

Yet the premier and governments from other overseas territories and crown dependencies lamented the lack of a level playing field in London.

They pointed at the United States as a prime example for the double standards that exist in the exchange of tax and beneficial ownership information.

The U.S. did not commit to the beneficial ownership initiative and it did not sign the anti-corruption communique supported by all other nations that participated in the event.

After the conference, Mr. McLaughlin said a standard without U.S. participation “is not a global standard” and the Cayman Islands will adopt a mechanism for the exchange of beneficial ownership data only if it is also implemented by the United States.

The anti-corruption conference passed the responsibility for the development of the global beneficial ownership standard on to the Financial Action Task Force and the Organization for Economic Cooperation and Development.

In October, the Financial Action Task Force, the body that governs anti-money laundering standards, called on the governments of the largest economies – the G-20 – to meet FATF standards on beneficial ownership.

“The challenge today is not the lack of international standards to improve transparency. The challenge lies in the effective implementation of these measures,” the FATF said.

By meeting FATF standards on legal and beneficial ownership and ensuring they are properly enforced, the G-20 members would lead by example.

This would include fully implementing Recommendations 24 and 25 of the FATF standards. It further means effectively monitoring gatekeepers, such as company formation agents, lawyers and trust and corporate service providers and their customer due diligence processes, and eliminating barriers to information sharing such as data protection and privacy concerns, as well as facilitating the sharing of information at the domestic and international levels.

The development of a global standard, however, is far from certain and will take time.

In the meantime, Cayman is pursuing both standards, the premier said, because it is committed to transparency.

In this spirit, Cayman in August replaced its Confidential Relationships (Preservation) Law, which often has been characterized as a “secrecy law,” with a Confidential Information Disclosure Law.

In addition, government has passed legislation completely abolishing the use of bearer shares, which could be used to conceal the beneficial owner of an entity. Bearer shares had already been immobilized since 2000.

In December, government launched a public consultation period for the Companies (Amendment) Bill, 2017, the Limited Liability Companies (Amendment) Bill, 2017 and the Companies Management (Amendment) Bill, 2017, which will form the legal basis for a centralized platform of beneficial ownership data and the exchange of this data.